Dubai crude futures rally on hopes of dual price, supply cuts

Singapore — Benchmark Dubai crude futures rose by more than 9% in mid-morning trading hours Monday, with the Middle East sour crude market in Asia pricing in the likelihood of extended supply side relief in the form of cuts on production as well as official selling prices.

At 11 am in Singapore (0300 GMT) on Monday, the June Dubai crude futures contract was pegged at $35.27/b, up 9.4% from its $32.25/b assessment at the close of trading in Asia on Friday.

Dubai's premium to ICE Brent futures also widened Monday morning, with the June Brent/Dubai Exchange of Futures for Swaps spread pegged at minus $2/b at 11 am, having been assessed at minus $1.34/b at 4:30 pm on Friday in Singapore.

Oil prices rallied over the weekend as dialogue restarted between OPEC+ producers to renegotiate production cuts. The meeting, initially scheduled for Monday, has now been postponed to Thursday amid rising stakes for Saudi Arabia and Russia, the two de-facto leaders at the table.

Market participants in Asia, however, were more focused on the simultaneous announcement of OSP delays from Middle East producers over the weekend. The likelihood of official selling price cuts is near-certain, they told S&P Global Platts on Monday.

"They [producers] have to cut OSPs," a crude trader based in Japan said.

"They cannot raise prices or maintain them considering the weak structure."

The trader was referring to the Dubai cash/futures spread -- also referred to as the M1/M3 structure -- which dove more than $3/b for May over the month of March to average minus $3.11/b compared with minus 2 cents/b in February.

The structure is understood to be a key component of producers' calculations when setting OSPs for Asian buyers every month.

For now, Saudi Arabia and other Middle East producers have delayed making a decision on prices until the OPEC+ meeting is concluded.

State-owned Saudi Aramco and the UAE's Abu Dhabi National Oil Co. will delay issuing their official selling prices for May crude exports until after the OPEC+ coalition holds its emergency meeting on Thursday, industry sources familiar with the matter told Platts on Sunday.

Aramco typically sets its OSPs in the first week of each month, and is closely followed by ADNOC and other Middle East national oil companies.

Traders anticipate Aramco dropping May OSPs again, based on plunging demand and the sharp drop in underlying reference markers for Middle East crudes in Asia, according to Platts' latest monthly OSP expectations survey.

Aramco's flagship Arab Light crude grade should see cuts of $1.50-$4/b for cargoes heading to Asia, while Arab Medium is expected to fall by $1.50-$2/b, the survey showed.

Meanwhile, official selling differentials for ADNOC's grades for May loading could be cut by around $2-$3/b, traders said in the survey.